Government proposals to ensure a better deal for energy consumers

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Millions of households to be moved to better energy deals, with suppliers limited to four tariffs per fuel type, and customers moved off …

Millions of households to be moved to better energy deals, with suppliers limited to four tariffs per fuel type, and customers moved off poor-value ‘dead tariffs’

Proposals to ensure that all households are on the best deal for their gas and electricity as soon as possible were published by the Government today.

Households across the country are facing a tough time with their energy bills. The Government cannot control volatile world energy prices, but it is taking action to help people get their bills down. Following publication of Ofgem’s Retail Market Review proposals, the Government is setting out further ideas to help consumers with their energy bills, including the Prime Minister’s commitment to ensure that households get the cheapest tariff.

These build on Ofgem’s Retail Market Review, and seek to strike the right balance between helping consumers in a market in which the majority of people currently do not engage, while maintaining consumer choice and incentives for suppliers to compete and innovate.

“I am determined to ensure all consumers get a better deal on their energy bill and get the cheapest tariff they can.”

“Bill payers will no longer face the impossible choice between hundreds of tariffs; each customer will have a maximum of four tariffs for gas or electricity per supplier to consider. And households will have personalised information from their supplier on their bills about the cheapest tariff the supplier offers for their payment method and the cheapest tariff overall.

“For too long people have been stuck on the wrong type of energy tariff, paying more than they need to. Our new proposals will make things much clearer and easier to understand, so that bill payers can get the best deal and feel the benefit in their pockets.”

Measures in the Department of Energy and Climate Change discussion document include proposals to:

Limit suppliers to four “core tariffs” per fuel. This will end the proliferation of tariffs that has taken place over the last few years. However, collective switching schemes will be able to negotiate bespoke prices.

Require that the four “core tariffs” contain one standard variable rate tariff, and one fixed term fixed price tariff. This will ensure that these two tariff types, which account for 85% of all customers, are clear, simple and easily compared.

Allow suppliers freedom to offer the remaining two tariff types as they wish, to preserve customers’ choices, such as green tariffs.

Require that suppliers offer just a single price for each of the four tariff types . As Ofgem set out, this requirement would not prohibit discounts for dual fuel or lower cost payment methods.

Prohibit poor value “dead” tariffs. This will ensure that no customers are left behind on poor value, out of date tariffs.

The Government wants all customers to have been placed on the cheapest price available from their supplier for the tariff type of their choice as quickly as possible and, at the latest, by Summer 2014. These new measures will also make it easier for consumers to shop around for the best market-wide deal. The Government will work closely with Ofgem in finalising the proposals.

The discussion document published today also includes:

measures to require suppliers to provide clearer information to consumers to help them switch;

proposals to establish a co-ordinated network of voluntary organisations and community groups to help vulnerable households get a better energy deal;

proposals for the Government to take enabling powers in the Energy Bill to ensure that energy consumers can benefit from innovative technology that facilitates switching through smart phones and other devices;

steps Government is taking to address barriers to collective switching and purchasing to allow it to flourish; and

powers for Ofgem to take a more formal regulatory approach to third party intermediaries if needed.

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Notes to editors:

The proposals set out today are open for consultation until 4 January 2013, and build on a series of steps the Government has taken over the last year to ensure that households can get the best deal for their energy:

At present the majority of consumers do not actively seek out the best deal on the market. Evidence from Ofgem’s Retail Market Review shows this is due in part to the complexity of tariffs and their proliferation in recent years. Ofgem noted in its ‘Retail Market Review - Findings and initial proposals’ published in March 2011 that the number of tariffs had increased to over 400. Complex pricing structures and the range of different approaches taken by suppliers make it extremely difficult, if not impossible, for consumers to compare tariffs between suppliers and to seek out the best deal. 75% of consumers are on standard variable rate tariffs, which tend to be more expensive. Ofgem estimates, in the impact assessment accompanying its current Retail Market Review proposals, that consumers can save an average of £72 and a possible maximum of £158 a year by switching to the cheapest deal in the market for their payment method. Larger savings can be made by some consumers if they switch supplier and change their payment method.

In its latest set of Retail Market Review publications, published 26 October 2012, Ofgem found that despite some suppliers’ steps to reduce the number of tariffs on offer there is still a baffling array of 410 to choose from. It also found that there are over 650 “dead tariffs” - these are standard variable rate tariffs that serve existing customers, but are not open to new customers. These tariffs make it harder for consumers to identify their own tariff, for example on a switching site list, and therefore make it more difficult to compare it with the current range of tariffs on offer. Ofgem’s analysis suggests that for the previous incumbent suppliers (those companies that inherited their customers when the gas and electricity markets were privatised) around one third of these “dead” tariffs are more expensive than the current standard variable rate the same suppliers offer to other customers.